Bitcoin's Role as a 'Fear Asset' Under Scrutiny: Is It a Hedge or a Hare?

The debate over Bitcoin's role in financial markets has intensified in recent years, particularly as investors grapple with its dual identity as both a speculative asset and a potential hedge against systemic risk. Traditional safe-haven assets like gold and the S&P 500 have long been tested during market stress events, but Bitcoin's performance remains contentious. A closer examination of its volatility, correlation with traditional assets, and behavior during crises reveals a complex picture: Is Bitcoin a hare-a volatile, unpredictable asset-or a hedge, capable of preserving value in turbulent times?

Volatility: The Unrelenting Wild Card

Bitcoin's volatility has consistently outpaced that of gold and the S&P 500, particularly during periods of market stress. During the 2020 COVID-19 crash, Bitcoin plummeted by over 50% intraday but rebounded 220% by September 2020, regaining its pre-crisis level in just two months. In contrast, gold's drawdown was minimal, and it maintained stability while climbing steadily. The S&P 500, though severely impacted, recovered to pre-crisis levels by August 2020. However, Bitcoin's volatility resurfaced in 2022's rate-hike shock, where it collapsed 53.4%, outpacing even the S&P 500's decline. Gold, again, proved resilient, remaining above pre-crisis levels after six months.

This pattern repeated in 2023's U.S. regional banking crisis, where gold rose above pre-crisis levels, while Bitcoin's price swings mirrored those of risk-on assets, defying its supposed safe-haven status. By 2025, during a tariff trade shock, Bitcoin failed to act as a refuge, while the S&P 500 suffered the largest initial losses. These episodes underscore Bitcoin's inconsistency: it can surge during recovery phases but often collapses during the onset of crises.

Correlation and Market Stress: A Shifting Dynamic

Academic studies reveal Bitcoin's evolving relationship with traditional assets and market stress indicators. From 2020 to 2025, Bitcoin's volatility reached three to four times that of the S&P 500, with its correlation to the index rising to 0.5 in early 2025-a sign that both assets now move together during risk-averse periods. This contrasts with earlier years (2018–2020), when Bitcoin was largely uncorrelated with equities.

Gold, meanwhile, has shown a unique feedback loop with Bitcoin: short-term Bitcoin prices are positively influenced by gold futures, while gold reacts negatively to Bitcoin's returns with a two-period lag. This suggests a complex interplay between the two assets, though gold's role as a stable store of value remains unchallenged.

Bitcoin's relationship with the VIX-a key market stress index-is equally nuanced. Research indicates that S&P 500 realized volatility has a negative, significant effect on Bitcoin's long-term volatility. This implies that while Bitcoin may initially spike during equity market turmoil, its volatility is ultimately tethered to broader market dynamics.

The Safe-Haven Illusion

Despite its proponents' claims, Bitcoin has yet to replicate gold's consistent safe-haven status. During the 2023 banking crisis, gold's positive returns contrasted with Bitcoin's erratic behavior. Similarly, in 2025's tariff shock, Bitcoin's failure to act as a refuge highlighted its susceptibility to macroeconomic uncertainty. Gold, by contrast, remained flat-a testament to its role as a stable asset during trade-related stress.

Bitcoin's volatility, while declining slightly as its market capitalization has grown, remains a barrier to its adoption as a true hedge. For instance, while some S&P 500 stocks exhibited lower volatility than Bitcoin in late 2023, the cryptocurrency's price swings continue to outpace those of traditional assets.

Conclusion: Hare or Hedge?

Bitcoin's performance during market stress events paints a mixed picture. It can deliver outsized rebounds post-crisis, as seen in 2020, but its volatility and inconsistent behavior during downturns undermine its reliability as a hedge. Gold, with its low volatility and steady returns, remains the gold standard (pun intended) for safe-haven assets. The S&P 500, while riskier, has shown faster recoveries in some crises, complicating the narrative of Bitcoin as a superior refuge.

For investors, the lesson is clear: Bitcoin's role in a portfolio should be carefully calibrated. It may offer diversification benefits during recovery phases but carries significant risks during the onset of crises. Until its volatility and correlation patterns stabilize, Bitcoin remains more hare than hedge-a high-risk, high-reward asset rather than a dependable safe haven.